Focusing on Smart Risk Taking in 2015

There are two key behavioral forces that drive the alternative investment industry.  The first is taking the risk to innovate -- to be creative and sometimes be different in the pursuit of performance.  The other is to be cautious and conservative -- to seek to fortify business to mitigate risk.  For the longest time, hedge funds have taken outsized risks in the pursuit of performance.  And, some of the most successful funds over the history of our industry have benefited from doing so. 

In one of my recent conversations, a senior hedge fund executive, when asked about the role of innovation in the business operations, admitted to being innovative and creative on the investment side and in the front office, but noted he had a long way to go in being innovative with running the business.  Why is this so?

In an era where change is not constant but accelerating, the number one challenge businesses face is adapting to this hastened pace of change.  Coupled with intense competition, increasingly sophisticated and demanding investors and a savvier regulatory regime, the pressure on COOs, CFOs, CTOs and CIOs to perform has intensified immensely. 

We need to question why the industry continues to operate on archaic business models.  Why are firms still engaged in complete shadowing as opposed to relying on an integrated front to middle to back office platform delivered by trusted partners?  Why are firms still buying technology that is 10, 15, 20 years old and then obliged to replace it every 3-5 years because it does not keep up with their evolving business needs?  Instead, why would hedge funds not consider a services model, in which a trusted partner provides services and technology, together with the fund, that can be continually customized to meet business needs?  Why is the industry still focused on defensive activities such as cybersecurity and the blocking and tackling of basic data and reporting needs, as opposed to working on contemporary technology that leverages employees by adapting mobility, big and small data and analytics, and cloud computing?

At the heart of the contemporary challenges I pose is this central question: why are firms in our industry so innovative and creative in the front office, in the investment side of business, but not so in the way they run their business operations?

It is time for us to change that dynamic.  Envision a future where you spend your time on only value-add activities while the daily operations of your business work seamlessly.  Where you are focused on doing things which you like to do that provide the most value to your firm, your investors and employees.  Visualize a future where you adopt big data and analytics, new media and robotics to enrich the work life of your employees, enabling your business to thrive and work as a well-oiled machine while increasing the amount of time you get to spend with your family or pursue other activities that enrich your life. 

The alternative investment industry is all about risk taking.  It is time to awaken and to focus on taking smart risks that pay off big in both the investment side of the business as well as on the operations side.